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Speaker 1: It was sixty global business news twenty four hours a day.

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Speaker 1: It's Bloomberg dot Com, the Radio plus Mobile Act and

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Speaker 1: on your radio. This is a Bloomberg Business flag from

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Speaker 1: Bloomberg World Handquarters. I'm Charlie Pellott. The SMP five hundred

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Speaker 1: indecks slipping from a record, while the Dow Jones Industrial

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Speaker 1: Average is on track for a record. That now up

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Speaker 1: eighteen points now to eighteen thousand, five hundred fifty That

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Speaker 1: is a gain of one tenth of one percent. The

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Speaker 1: SMP five hundred indecks down four to sixty two, a

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Speaker 1: dropped there of two tens of one percent. And then

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Speaker 1: stack is down twenty points to five thousand thirty five,

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Speaker 1: a drop there of four tens of one percent. Ten

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Speaker 1: you up eight thirty seconds, the yield one point five

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Speaker 1: five percent, Gold up three ten the ounce now to

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Speaker 1: thirteen thirty two, a gain of two tenths of one percent.

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Speaker 1: And crude oil down one and a half percent, back

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Speaker 1: below forty five dollars of barrel forty four fifty eight

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Speaker 1: now on West Texas Intermediate Crude. I'm Charlie Pellett, and

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Speaker 1: that's a Bloomberg Business flash. This is taking stock with

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Speaker 1: bin Box and Kathleen Hayes on Bloomberg Radio. Dividend paying stocks, Well,

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Speaker 1: they're a hot theme on the global scene. Is that

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Speaker 1: the attraction of the companies. Can they grow those dividends

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Speaker 1: over time? Can they increase their cash flow? Can they

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Speaker 1: increase their strong commitment to return capital to shareholders. Let's

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Speaker 1: find out more about the equity market with Art Hogan.

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Speaker 1: He is the chief market strategist for wonder Licked Securities.

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Speaker 1: Art Hogan, thanks very much for being with us. Thank

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Speaker 1: you so much for having me. You know, um, I

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Speaker 1: want to just first of all, get your kind of

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Speaker 1: overview of what is going on in the equity markets

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Speaker 1: right now. Why are people buying stocks in your opinion, Well,

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Speaker 1: probably free things. And I think first and foremost, we

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Speaker 1: had a knee jerk reaction to the seismic event that

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Speaker 1: was the UK referendum, and and that's really worked its

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Speaker 1: way into a pretty steen steep, quick sell off. And

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Speaker 1: then as they sort of settle into the post realization

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Speaker 1: that that's probably not going to keep the globe from

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Speaker 1: spinning here and uh and and certainly cause a recession

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Speaker 1: in the US, and and and and be a dent

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Speaker 1: in our earnings is, at least in the near term.

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Speaker 1: I think it was kind of rationalizing where the best

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Speaker 1: place to have money is right now. And unfortunately, when

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Speaker 1: you look at yields across the globe and certainly our tenure,

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Speaker 1: even though it's moved up from one thirty three to

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Speaker 1: one fifty today, yeah, one fifty five today, you still

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Speaker 1: have a about a forty five or fifty basis point

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Speaker 1: delta between the yield on the SP five heard in

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Speaker 1: the yield on a tenure, and that historically don't see

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Speaker 1: that that had blown out about at basis points, you know,

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Speaker 1: as early as the beginning of last week. So you know,

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Speaker 1: I think on an attraction basis, and you mentioned divid

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Speaker 1: and darlings and dividend paying stocks at the outset, but

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Speaker 1: I think, you know, the real attraction here is, does

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Speaker 1: the SMT five look any any more attractive than you know,

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Speaker 1: putting your money in the US tenure in terms of

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Speaker 1: what's your ultimately yield is. And I think that's one

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Speaker 1: of the biggest draws. I also think that the economic

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Speaker 1: data of the second quarter certainly seems to be better

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Speaker 1: than the first quarter and certainly seems to be back

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Speaker 1: in the line with a two and a half percent

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Speaker 1: GDP growth rate, which is probably going to be you know,

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Speaker 1: good enough and certainly better than a lot of alternatives.

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Speaker 1: So I think you've gotta you know, the possibility that

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Speaker 1: this earning season is an inflection point. And then we

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Speaker 1: start seeing positive learnings growth against music comps coming in

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Speaker 1: the second half of this year, and and uh, and

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Speaker 1: then the stocks are looking more attractive, sounding pretty sanguine

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Speaker 1: about stocks right now, Aret, do you think that people

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Speaker 1: ought to be getting in and buying Well, I tell

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Speaker 1: you this what I'm nervous about, and then you started

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Speaker 1: you let off with what I'm most nervous about. And

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Speaker 1: the good news is during this rally, we've seen a

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Speaker 1: rotation out of some of those utilities and staples and

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Speaker 1: telecoms which I think are getting dangerously over bought, you know,

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Speaker 1: that crowded trade that is a utility though it is

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Speaker 1: a trade that's works, and it's worked for a couple

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Speaker 1: of years, and it's certainly percent on the unit date

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Speaker 1: basis on the utility index, but it gets dangerous. And

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Speaker 1: where I get the most concerned is thinking that bond

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Speaker 1: Surrogan is safe. Right. You know, we're trying to get

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Speaker 1: multiples that are historically high and yields that are historically

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Speaker 1: low for that group, as is the staples as as

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Speaker 1: a telecoms silser extent. And that's where I get concerned

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Speaker 1: if if we start to see this continuation of a

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Speaker 1: rotation out of those sectors, are the days that we

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Speaker 1: do well. If those are the worst performing sectors, and

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Speaker 1: some of the growthier sectors, like the industrials, like the healthcare,

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Speaker 1: like the consumer discretionary, perhaps the technology sectors start to

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Speaker 1: get the sponsorship that I feel whole lot better about.

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Speaker 1: You know, the condition that the stock market was in

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Speaker 1: art Hogan, It's easy to make the case, I guess,

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Speaker 1: for dividend paying stocks when you compare it to of

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Speaker 1: course what the ten year treasury is yielding, right one

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Speaker 1: point five five percent? So you say, all right, well

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Speaker 1: stocks could be a proxy uh four bonds. That's great.

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Speaker 1: When stocks are moving up, do you think that investors

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Speaker 1: are going to have another another thought? If we see

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Speaker 1: a correction in equities, that's something that doesn't necessarily get

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Speaker 1: as much attention as as that comparative yield program, right,

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Speaker 1: And that's I think that's the point, right when you

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Speaker 1: think about that let's let's say, for example, and utilities alone,

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Speaker 1: if we were to take that and just mean we've

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Speaker 1: heard half of the of the movie's seen on a

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Speaker 1: multiple basis to you know what we typically see. So

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Speaker 1: utility index typically say the fourteen and a half or

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Speaker 1: fifteen times currently trading an eighteen and a half or

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Speaker 1: nineteen times. Cut that in half, and then you've wiped

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Speaker 1: out two years worth of yield. So that yield play

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Speaker 1: that you had you lost in in uh capital appreciation.

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Speaker 1: So that's where the danger comes in. And I'm not

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Speaker 1: to know that's not to say that we need to

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Speaker 1: see mean reversion and every over bought sector of the

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Speaker 1: SP five hundred, but you're just a mild. Mean reversion

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Speaker 1: is going to find investors that you know, thought they

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Speaker 1: were buying bond sergus there actually buying stocks. And you

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Speaker 1: find out pretty quickly how quickly that yield evaporates when

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Speaker 1: you were you taking capital losses. Yeah. Well, also, no

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Speaker 1: one rings a bell when when the stock hits a

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Speaker 1: hits a high to tell you that you should get out. Now,

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Speaker 1: that's that is the problem. And I think that's where

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Speaker 1: you have to look at his story. Evaluations and and

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Speaker 1: and hearken back. Now, the market itself probably appears to

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Speaker 1: be a bit you know, pricey. Here if you look

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Speaker 1: at this on a sort of trailing twelve months, you

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Speaker 1: know we're turning at eighteen times and S and T

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Speaker 1: probably sixteen and a half times next year's estimates. And

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Speaker 1: and you know, if you went back to the last

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Speaker 1: twenty five years, that's going to look a couple of

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Speaker 1: multiple turns higher. So you know, they don't ring a bell,

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Speaker 1: but oftentimes it's probably a good idea to look at

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Speaker 1: where things tend to go. Now, none of those things happen,

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Speaker 1: you know, in a vacuum, so you do have to

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Speaker 1: look at the yield on the ten year, You have

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Speaker 1: to look at what your alternatives are, and you have

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Speaker 1: to look at the current state of inflation um and

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Speaker 1: both of those are all ultra low. So you know, again,

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Speaker 1: I suppose you can give yourself a couple of multiple turns.

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Speaker 1: But you know, we're at a we're at a point

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Speaker 1: now where I can see this market continue to get

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Speaker 1: you know, upward momentum, and we certainly have found a

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Speaker 1: path the least resistance for the upside. We'll know a

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Speaker 1: whole lot more as we really get in the hard

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Speaker 1: earning season the end of this week and into next

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Speaker 1: week where we have north of d and fifty SPF

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Speaker 1: owner companies reporting. But you have to be careful because

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Speaker 1: you know, stocks priced for a perfection to deliver profection

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Speaker 1: during this earning season, and we've seen what happens when

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Speaker 1: they don't. Well, let's take one stock in particular, I

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Speaker 1: know you've been following. This is Johnson and Johnson. Now

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Speaker 1: here is a stock that is up more than twenty

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Speaker 1: one percent so far this year, pays a two and

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Speaker 1: a half percent dividend currently and the shares are hired

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Speaker 1: by one and a half percent because of the earnings results.

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Speaker 1: But yet it trades at an estimated p of more

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Speaker 1: than eighteen times. Yeah, you know what, oddly enough to him,

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Speaker 1: that's actually trading out of market multiple, right, it's trading

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Speaker 1: at the same multiple DSPF. I've heard it. If you

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Speaker 1: look at a business that has a handsome dividends done

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Speaker 1: well in their farmer the farmers the bright spot. Uh

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Speaker 1: and and and as as you think about things, you know,

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Speaker 1: would you rather have a household name like Johnson and

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Speaker 1: Johnson has actually been able to deliver solid earnings growth

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Speaker 1: and pay that market multiple. So you know a relative basis,

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Speaker 1: is Johnson and Johnson expensive at eighteen times historically, yes,

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Speaker 1: but it's trading at the same multiple that DSPF I've

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Speaker 1: heard it is. So you know, to the extent that

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Speaker 1: you know, you have your choices here and obviously Johnson

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Speaker 1: Johnson is one of the stars of the day. Here art,

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Speaker 1: how do you know when to sell? Well, it's it's

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Speaker 1: it's three things, and I certainly think one of those things.

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Speaker 1: And we've seen this, you know, three three times in

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Speaker 1: the last twelve months. It's your risk tolerance, right, So

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Speaker 1: if if, if, if you're looking at your portfolio and

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Speaker 1: you see the last August sell off when we we

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Speaker 1: had the beginning of the China currency peg concerns and

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Speaker 1: have been again you know in the januarys every time

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Speaker 1: frame when we sold down tempersent on similar concerns, or

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Speaker 1: you know the quick six percent down drafts were the

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Speaker 1: UK referendum, and those things keep you awake at night.

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Speaker 1: If if your natural reactions to sell and all three

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Speaker 1: of those insan says you probably are overexposed equities. The

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Speaker 1: the other piece of the puzzle is, you know, use

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Speaker 1: history as a guide where you know, at some point

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Speaker 1: in time, we're gonna mean reverting evaluations will either grow

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Speaker 1: in evaluations and earnings will grow here, or we need

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Speaker 1: to have a draw down here to normalize evaluations. We're

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Speaker 1: getting expensive here. So you know, it's it's okay to

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Speaker 1: be raising cash and have cash, you know, on the

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Speaker 1: sidelines at some point in time, and it should be

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Speaker 1: part of your portfold you when you think about your

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Speaker 1: near asset allocation, there's there's always that percentage that should

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Speaker 1: be in cash for those opportunities when you see dislocations

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Speaker 1: in the market. The other thing is if your long

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Speaker 1: term investor, if you're just starting in this game, you

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Speaker 1: don't have to be as concerned about the ups and

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Speaker 1: downs in the day to days and those three different

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Speaker 1: drawtowns that we've seen in the last twelve months, and

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Speaker 1: and thinking about this for the long term. But if

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Speaker 1: your typical you know, older investor like myself who who knows,

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Speaker 1: you know, in the in the next ten years, you're

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Speaker 1: gonna need that money for things like retirement or the

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Speaker 1: things of that nature. Your your exposure for the ectuly

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Speaker 1: markets should be much less. Uh. If art Hogan suddenly

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Speaker 1: found a bag of money that fell from the sky.

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Speaker 1: What would you be doing with it? Well, that would

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Speaker 1: be a little first and foremost, I would h I

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Speaker 1: would probably be looking at those sectors and the spvernment

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Speaker 1: that have underperformed here and and and we'll probably take

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Speaker 1: a couple of years to play up. But I think

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Speaker 1: if you look at the three of the biggest underperforming

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Speaker 1: sectors first and foremost, I think financials are ridiculously and expensive,

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Speaker 1: but you have to have a longer term view on that.

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Speaker 1: We've had low interest r. If that's terrible for financials,

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Speaker 1: writ large netsis margins are just non existent. It's difficult

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Speaker 1: for them. That's gonna not gonna be in place forever.

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Speaker 1: So I think there's some great financials that probably are

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Speaker 1: fitting at some you know, percentage of their tangible look

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Speaker 1: falure that are going to be great bargains and we'll

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Speaker 1: look back two years from now and say that was

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Speaker 1: that was a bicycle. I think the same is true

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Speaker 1: in healthcare. And I think healthcare sort of an election

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Speaker 1: year gets it that reimbursement um problem and we talk

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Speaker 1: about you know what's going to happen, and then the

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Speaker 1: electorcycle and then lo and behold, you know this has

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Speaker 1: happened every presidential electorcycle that I can remember, and lo

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Speaker 1: and behold, nothing really happens, and we go forward and

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Speaker 1: those are probably bargains. And the third I think is

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Speaker 1: opportunistically in a consumer discretionary space. I think we've decided

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Speaker 1: that the American consumer no longer you know, likes to

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Speaker 1: go out and and pay for things. I think if

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Speaker 1: we find the brand leaders that are out there, you're

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Speaker 1: getting some great bargains there. Thanks very much, Art Hogan.

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Speaker 1: He is the chief of market Strategies for one Delected Securities,

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Speaker 1: speaking about healthcare financials as well some consumer discretionary stocks.

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Speaker 1: They might fit the bill for your portfolio. We're gonna

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Speaker 1: take you through to the close. Next on Wall Street,

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Speaker 1: this is Bloomberg